FOI 043/15/16
SEA 1000 – FUTURE SUBMARINES
Issue
What does the government mean by this statement?
“What we have always intended to have is a competitive evaluation
process [for selection of the Future Submarine]”
Headline Statement
The Australian Government is determined to get the best value for
money and the best submarine capability available.
Key Points
The Government’s policy is to ensure that Australia obtains
regionally superior conventional submarines while avoiding a
capability gap.
The number of Future Submarines to be acquired is being
considered through the Force Structure Review.
As I have said, decisions on the submarines will be based on a
competitive evaluation process managed by the Department of
Defence that considers fully the unique requirements of our
Future Submarine capability.
This will take place within a thorough ‘two pass’ Cabinet process,
and we will receive professional advice from Defence to ensure
we get the best capability.
The Department has a rigorous process for determining the
acquisition strategies to be used for acquiring any major
capability. Key factors such as the capability required, the
available options and strategic requirements are all considered in
the development of the strategy.
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The acquisition strategy may determine that a tender process that
is either fully open or limited may provide the best approach.
Defence commonly undertakes the procurement of major capital
equipment without undertaking an open tender process.
The selection of the designer and builder for the Collins class
submarines was not undertaken through an open tender process.
Instead, a limited request for tender was issued to seven
submarine designers and builders for a submarine platform
system design proposal (the limited tender was issued in May
1983).
The Defence Materiel Organisation has a standard tender process
based on a suite of templates termed the ASDEFCON
[pronounced “As-Def-Con”] suite and guidance set out in the
Defence Procurement Policy Manual (DPPM).
In the case of a Request for Tender being responded to by
multiple tenderers, the process culminates in a competitive
evaluation of the tenders. (DPPM Chapter 5.6)
Equally there are other circumstances that mean the best
outcomes can be achieved by another competitive approach.
There are cases where Defence needs to compare offers and
determine value for money outcomes based on a range of sources
of information, not just from a tender.
A good example is where one offering is through the United
States Foreign Military Sales (FMS) system. The US
Government will not respond to a standard request for tender for
FMS products. Therefore, it becomes necessary to conduct a
competitive evaluation using an FMS offer compared to other
information which may include a tender response.
Two recent examples are the procurements of the C-27J airlift
aircraft and MH-60R helicopter acquisitions.
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In the case of the C-27 acquisition, although there was some
criticism of the process undertaken, the ANAO audit in 2013 on
this project found that overall:
Defence’s processes to select the US variant C-27J met
relevant Commonwealth legislative and procurement
requirements applicable at the time; and
that there was a reasonable basis for government to select the
US variant C-27J as a better value for money option than the
commercial version of the C-27J, and the Airbus C-295.
An open tender involves publishing an open approach to the
market and inviting submissions (see Commonwealth
Procurement Rules, paragraph 9.8).
A limited tender involves a relevant entity approaching one or
more suppliers to make submissions, when the process does not
meet the rules for open tender or prequalified tender (see
Commonwealth Procurement Rules, paragraph 9.10).
The competitive evaluation process managed by the Department
of Defence will take into account capability requirements, cost,
schedule, technical risk and value for money considerations.
As was the case with the Collins class submarine, it is expected
that international involvement will be required in this project.
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If asked: about calls to develop a Submarine Construction
Authority to oversee the Future Submarine project
Shipbuilding requirements will be guided by the Defence White
Paper and the Australian Naval Shipbuilding Plan.
No decisions have been made on the design or construction of the
next generation of Australian submarines.
If asked: about the number of submarine sustainment jobs
expected in Adelaide
Approximately 1000 people are currently employed in South
Australia to sustain the Collins submarines. Around 400 people
are also employed in Collins sustainment activities in Western
Australia.
Australian industry will continue to have a vital role in sustaining
the next generation of Australian submarines.
If asked: Is ASC’s estimate of $18-24 billion to build 12 future
submarines in Australia accurate?
Until our requirements are properly considered by any submarine
designer and builder, cost proposals for the future submarine
cannot be predicted with certainty.
At this stage of the program, cost proposals should be treated with
a high degree of caution.
Importantly, the cost of the future submarine program will need to
cover design, infrastructure, combat system, and broader project
expenses, as well as construction costs.
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If asked: Will the Government accept the recommendations of the
Senate Inquiry into the Future of the Australian Naval
Shipbuilding?
No decision has been made on the recommendations made by the
Committee in their report tabled on 17 November 2014.
The Committee’s recommendations will help inform the
Government’s decisions on Australia’s future submarine.
If asked: about submarine cooperation with Japan
Australia is discussing issues relating to submarines with a
number of countries, including Japan.
There has been no decision on any specific areas of cooperation
with any country.
If asked: about the C-27J acquisition
In seeking to procure a replacement for the Caribou aircraft
Defence concluded there were three viable options: An FMS
procurement of the C-27J in a configuration specific to the US
Government; a direct commercial sale from the US supplier of
the C-27J; or the C-295 built by Airbus Military.
In October 2011 Defence approached the commercial suppliers of
the C-27J and the C-295 to obtain price, availability and
capability data to compare against information sought from the
US Government via FMS on the US variant C-27J option.
Defence evaluated the industry responses and compared them to
the US offer.
The competitive evaluation concluded that:
the Airbus Military C-295 did not meet several essential
capability requirements, including interoperability
requirements with other ADF aircraft logistics systems14;
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the US variant C-27J was the only Military Off The Shelf
(MOTS) option available, incorporating ballistic protection,
electronic warfare protection, and communications systems
that provided battlefield survivability and interoperability with
other ADF platforms and the US16; and
the commercial C-27J option offered by Raytheon could not
offer substantial benefits over and above those offered by the
US variant available under FMS arrangements.
The cost to industry of participating in a full tender process was
high and Defence assessed (based on previous research and the
most recent information received from commercial sources) that
the commercial suppliers could not compete with the FMS offer
in any case. Defence further considered that conducting a tender
would have taken several months and resulted in the loss of the
competitive aircraft price available through FMS until 30 June
2012.
If asked: about the MH-60R helicopter procurement
AIR 9000 Phase 8 is delivering a new maritime combat helicopter
capability as a matter of urgency for Navy. The project was
predicated on the selection of a capability solution that was
already an established military-off-the-shelf (MOTS) system.
Only two MOTS options showed the potential to meet this
capability requirement. They were the NATO Helicopter
Industries NH90 NATO Frigate Helicopter (NFH) and the
Sikorsky/Lockheed Martin MH-60R Seahawk Romeo.
The NH90 NFH was available through a commercial arrangement
with Australian Aerospace (now Airbus Group Australia Pacific).
The MH-60R Seahawk Romeo is only available from the United
States Government through their Foreign Military Sales (FMS)
program.
Defence sought to obtain best value for money in the selection of
a supplier for the maritime combat helicopter capability through a
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a sole source Request For Tender (RFT) for the Acquisition
and Sustainment of the NH90 NFH Mission and Support
Systems released to Australian Aerospace; and
two Letters of Request (LOR) released to the United States
Navy for the Acquisition and Sustainment of the MH-60R
Mission and Support Systems through the United States' FMS
program.
The Defence competitive evaluation process compared the FMS
Letters of Offer and Acceptance (LOAs) received from the
United States Navy in response to the LOR with a tender received
in response to the commercial RFT from Australian Aerospace. A
Value for Money (VFM) determination was made during the
evaluation process to determine the preferred solution and to
structure the preferred contractual arrangements subsequently
negotiated by Defence.
The VFM determination considered cost (an assessment of the
total capability acquisition and whole of life sustainment costs),
schedule, capability, commercial and Australian industry aspects,
performance history, intellectual property, compliance and risks.
AIR 9000 Phase 8 received First Pass approval in February 2010
and Second Pass approval just 16 months later in June 2011. The
MH-60R Seahawk Romeo was selected after being recommended
by Defence as the best VFM and the lowest risk. The project will
deliver 24 aircraft, two mission simulators and a range of other
training and support elements. The approved budget is $3.202
billion. The project remains on schedule and under budget.
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Background
On 17 November 2014, the Senate Economics References Committee tabled Part II of its
Report into the Future of the Australian Naval Shipbuilding Industry, in which it
recommended an immediate competitive tender for the Future Submarine Program to build,
maintain and sustain Australia’s future submarines in Australia. On 22 October 2014, Defence
appeared at the Senate Supplementary Budget Estimates hearing, where the Future Submarine
Program featured prominently in discussions on capability and projects. Most of the
discussion centred on the status of the program, the schedule for a decision and the evidence
heard by the Senate Economics Reference Committee (SERC) Inquiry into the Future of
Australia’s Naval Shipbuilding. Mr John White, who conducted the review into the Air
Warfare Destroyer program on behalf of the Government, provided a submission to the SERC
Inquiry into shipbuilding. Mr White appeared at a public hearing of the Inquiry in Melbourne,
on Monday 13 October 2014.
On 30 September 2014, Defence appeared at the Senate Economics Reference Committee
Inquiry into the Future of Australia’s Naval Shipbuilding Industry. On 10 September 2014,
then-Minister Johnston said, “We haven’t made any decision with respect to submarines. This
is a very complex issue – we’re looking to make a firm decision next year in the White
Paper”. The SEA 1000 Future Submarine Program is developing options to replace the
Collins class submarines. Program resources have been focused on progressing an ‘evolved
Collins’ option (Option 3) and new design option (Option 4). Australia is also exploring
submarine cooperation with a number of countries, including Japan. No decision has been
made on cooperation with any country.
In April 2014, the Prime Minister and the Minister for Defence announced the development
of the 2015 Defence White Paper. The White Paper will provide a costed plan to achieve
Australia’s defence objectives and an affordable Australian Defence Force structure. This
plan will align Defence’s strategy and capability aspirations with agreed funding. There will
be a comprehensive consultation process with Australian industry and the Australian public,
our allies and regional partners. A Defence Issues Paper, largely prepared by the Expert Panel,
has been produced to support the public consultation program. A call for public submissions
closed on 29 October 2014. Following the release of the 2015 Defence White Paper, a
ten-year Defence Capability Plan and a Defence Industry Policy Statement will be published.
Media Attention
On 11 February 2015, there continued to be extensive coverage of statements by Government,
confirming that a competitive evaluation process would be used for the Future Submarine
Program. Coverage focussed on what a competitive evaluation process would entail and the
difference between this approach and an open tender.
On 10 February 2015, there was ongoing commentary in most major publications regarding
comments by the Prime Minister and Minister for Defence confirming that the Future
Submarine Program would follow a competitive evaluation process, and speculating what this
means for Australian shipbuilder ASC.
On 9 February 2015,
The Australian and the
Adelaide Advertiser each contained articles
reporting on statements by the Prime Minister that there would be a competitive evaluation
process conducted for the Future Submarine.
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On 6 February 2015, the
Australian Financial Review published a story claiming that during
discussions with German Chancellor Merkel at the G20, Prime Minister Abbot agreed that if
Australia progressed acquisition of a Japanese submarine, that it could increase tension with
China.
On 4 February 2015,
The Australian ran an article stating that the Government had shelved a
planned announcement on the Future Submarine Program in December, just days before the
Cabinet reshuffle which saw a change in Defence Minister. The article further states that the
announcement was to include detail on the creation of a “national defence industry entity to
work with an experienced international submarine designer and builder”.
On 8 February, you indicated publicly that the Government had always intended to have a
“competitive evaluation process” in relation to the Future Submarine Programme (an extract
of the transcript is at Attachment A).
Media reports are claiming that the Government will now seek a commercial “open tender
process” to select the Future Submarine.
Point of Contact
RADM Greg Sammut, Head Future Submarines Program, (w) 6265 2251 (m) 0459 248 106
David Gould, General Manager Submarines, (w) 6266 7756 (m) 0467 748 615
Departmental information valid as at: 11 February 2015
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Document Outline
